No airfare hike; PAL hopes Middle East conflict temporary

TOULOUSE – As conflict escalates in the Middle East and fuel prices surge, flag carrier Philippine Airlines (PAL) is holding back on increasing fares and is hoping that the intensified conflict will be short-lived.

“We’re hoping that this is temporary,” PAL chief operating officer Carlos Luis Fernandez told The STAR last Sunday in this French city that is home to Europe’s aerospace industry. “The sooner it gets resolved, the better for everybody.”

The Civil Aeronautics Board (CAB) has an automatic mechanism for assessing when airlines can impose a surcharge, for factors such as spiraling prices of aviation fuel.

Even if the CAB approves the collection of a surcharge, however, Fernandez stressed that airfares, unlike most products or services, are not dictated by costs, but by market forces. Other carriers may not see the need to increase fares when fuel prices spike.

“We need to be competitive with other airlines,” he explained. “We can’t price ourselves out of the market.”

Fernandez thinks that among the industrial sectors, aviation is the most heavily impacted by adverse geopolitical developments.

The impact, he explained, is felt in three areas: rising fuel prices, which is the biggest expense of commercial airlines; travel demand, which could slow down as a result of geopolitical conflict; and the possibility of a recession.

After Russia invaded Ukraine, flights were rerouted, fuel prices shot up and the resulting supply chain disruptions eventually led to an acute shortage in aircraft maintenance parts that caused chaos in global flight management.

This time, with the United States joining Israel in launching strikes on what their leaders say are nuclear facilities in Iran, fuel prices are again surging.

The instability in the Middle East is on top of the tariffs slapped by US President Donald Trump on many countries.

Fernandez came to Toulouse, headquarters of Airbus, to unveil the first of nine Airbus A350-1000 widebody aircraft ordered by PAL for its long-haul flights.

Both Fernandez and PAL president Richard Nuttall, who was also here for the first-hand look at the A350-1000 currently undergoing final assembly for the airline, said they don’t expect the tariffs to alter pricing for their orders, which were placed two years in advance, with the pricing locked in.

But the ongoing conflicts in Ukraine and the Middle East could set back recovery from the spare parts problem that hit the entire airline industry, which Nuttall described to be “plateauing.”

Fernandez said PAL pursued “creative sourcing” for the needed spare parts. He did not provide details.

“It has been a challenge for us,” he admitted, but added that the issues “have been generally resolved.”

Now airlines must grapple with the surge in aviation fuel prices.

As of May 22, aviation fuel was priced at $79 per barrel in the world market, Fernandez said. Last Friday, the price had spiked to $98 per barrel.

Raising airfares, however, does not come automatically, he said.